Moving pension pots for the best annuity

dunstonh

 I think @dunstonh will tell you that an IFA can tease out answers to these questions which can deliver better value (not false answers just the right sort of detail).

I have one on the go at the moment that I am on my third attempt to get information from the client, as they just keep leaving things out.   And that probing to get more is leading to better outcomes.       

Last year I did one where the final income amount was over 20% higher than what they got from an online broker (often mentioned on here).   The difference was that, being non-advised, the online broker accepted what was entered and quoted on that basis.   Whereas I pushed for GP and consultant letters and gap-filling missed questions and got it referred for manual underwriting instead of computer.   There was no magic IFA sauce there.  It was purely about ensuring the information was present.   If the person had given all the info at the start, then the outcome via either method would have been similar.     If there had been no qualifying conditions to trigger an enhancement, then again, the differences would have been minimal with just the fee level vs commission level being the main differentiator in the annuity rate.

Otherwise, she needs a broker/IFA to turn the pot(s) into an annuity.  This is a complete surprise to me; I honestly thought the pension company would ask you the health/widow pension questions etc then make you an annuity offer.  Is the pensioner left to find one themselves or does the pension company offer some affiliated agency?  What fees might she expect to pay in doing so?

Any local IFA on online annuity broker.   Either has access to all the annuity providers on the market.   So, its just  case of providing them with the info  and they will tell you who the best provider is in that scenario.   

That whole-of-market side is important.    I have done a couple of dozen annuities in the last 12 months.  Scottish Widows only came out top twice.    However, there were a number of cases where they came out best in certain quote options but not others (options being things like indexation rate,  type of death guarantee etc).   We have a sheet where we get a range of quote options to allow a cost comparison of the benefits and often you find annuity provider A is best with one option and annuity provider B best with another.      Sometimes, you get 3 or 4 annuity providers that appear best depending on the options.     Other times, one annuity provider can be a clean sweep.  

Certain annuity providers will dip into the market for 3-5 days and then dip out again.  By that, I mean they increase their annuity rate to get a target business level and when they have it, they drop their annuity rate.  Just is one who often moves around a lot.

IFAs cannot take commission on advised cases.  So, its fee with them.  But the fee can be collected from the pension.   So, IFAs get you a nil commission annuity rate but the fund would be lower because the fee was deducted.      Non-advised brokers normally take a commission instead of a fee.    So, the annuity rate is lower to factor in that commission rather than it being taken from the fund value.       If the fee and the commission are the same, then it's broadly like comparing 5x4 with 4x5.  i.e. the same.

DRS1

Roy1234 said:

Thanks both, very interesting and more complex than I’d supposed.  So if I summarise correctly, she probably won’t be able to buy her annuity directly from SW even if she wants to, but would need a broker.  ‘If’ SW will sell directly, then she might be able to transfer her other pension pot to SW first to simplify that. Which @dunstonh thinks might be a mixed blessing.

Otherwise, she needs a broker/IFA to turn the pot(s) into an annuity.  This is a complete surprise to me; I honestly thought the pension company would ask you the health/widow pension questions etc then make you an annuity offer.  Is the pensioner left to find one themselves or does the pension company offer some affiliated agency?  What fees might she expect to pay in doing so?

I will ask her to enquire about safeguarded benefits.

For her SW pension SW will give her an annuity quote and will sell her the annuity.  Similarly if she has a pension with Aviva they will give her a quote and sell her the annuity.  Direct.  But SW will NOT give her an annuity quote for her Aviva pension.  At least not directly.  For that she will either have to transfer the Aviva pension to SW or use a broker/IFA.  I am just using Aviva as an example here as I don't know who the other pension is with.

You may be thinking that using a broker or IFA will be more expensive than going direct.  I don't think it is - if you go direct you do not get the commission free annuity rate that an IFA might get.  There is commission built in to the direct quotes just like there is to the quotes you get via HL or Retirement Line.  Though @dunstonh's post about how the commission rate can be tinkered with by the broker/IFA was interesting and  news to me.

Roy1234

dunstonh said:

 I think @dunstonh will tell you that an IFA can tease out answers to these questions which can deliver better value (not false answers just the right sort of detail).

I have one on the go at the moment that I am on my third attempt to get information from the client, as they just keep leaving things out.   And that probing to get more is leading to better outcomes.       

Last year I did one where the final income amount was over 20% higher than what they got from an online broker (often mentioned on here).   The difference was that, being non-advised, the online broker accepted what was entered and quoted on that basis.   Whereas I pushed for GP and consultant letters and gap-filling missed questions and got it referred for manual underwriting instead of computer.   There was no magic IFA sauce there.  It was purely about ensuring the information was present.   If the person had given all the info at the start, then the outcome via either method would have been similar.     If there had been no qualifying conditions to trigger an enhancement, then again, the differences would have been minimal with just the fee level vs commission level being the main differentiator in the annuity rate.

Otherwise, she needs a broker/IFA to turn the pot(s) into an annuity.  This is a complete surprise to me; I honestly thought the pension company would ask you the health/widow pension questions etc then make you an annuity offer.  Is the pensioner left to find one themselves or does the pension company offer some affiliated agency?  What fees might she expect to pay in doing so?

Any local IFA on online annuity broker.   Either has access to all the annuity providers on the market.   So, its just  case of providing them with the info  and they will tell you who the best provider is in that scenario.   

That whole-of-market side is important.    I have done a couple of dozen annuities in the last 12 months.  Scottish Widows only came out top twice.    However, there were a number of cases where they came out best in certain quote options but not others (options being things like indexation rate,  type of death guarantee etc).   We have a sheet where we get a range of quote options to allow a cost comparison of the benefits and often you find annuity provider A is best with one option and annuity provider B best with another.      Sometimes, you get 3 or 4 annuity providers that appear best depending on the options.     Other times, one annuity provider can be a clean sweep.  

Certain annuity providers will dip into the market for 3-5 days and then dip out again.  By that, I mean they increase their annuity rate to get a target business level and when they have it, they drop their annuity rate.  Just is one who often moves around a lot.

IFAs cannot take commission on advised cases.  So, its fee with them.  But the fee can be collected from the pension.   So, IFAs get you a nil commission annuity rate but the fund would be lower because the fee was deducted.      Non-advised brokers normally take a commission instead of a fee.    So, the annuity rate is lower to factor in that commission rather than it being taken from the fund value.       If the fee and the commission are the same, then it's broadly like comparing 5x4 with 4x5.  i.e. the same.

Thanks, so really it's about thoroughly (but honestly) exploring the health side, annuities being a rare situation where having a poor lifestyle (from the GP's perspective) actually benefits you financially.  Most people I know get little if any attention from their GP, even the most basic periodic screening has now stopped, it seems.  So a complication could be that your genuinely poor health aspects (e.g. true alcohol consumption, weight etc) just aren't actually recorded anywhere.  But I suppose you're saying it would take something more substantial/recorded to have any real affect.

The idea of annuity providers offering special offer rates that vanish days later, for whatever reason, is disconcerting for anyone making long-term plans like this.  Can the offer be grabbed whilst there, albeit completed long afterwards?

If a broker/IFA is probably the only access to the annuity providers, does the customer get anything like a web page/interface to play with variables?  Meaning she might like the idea of an annuity that paid a guaranteed time/amount beyond death, but not if it hit her lifetime payment too much, so might want to adjust in real-time to decide the best compromise.

Accepting that the IFA fee/ broker commission might come from the pension pot, so be less visible, how much are we talking about?

And are the possible special guarantees you describe offers so that those pension companies who will also offer annuities, attempt to retain that customer?

dunstonh

The idea of annuity providers offering special offer rates that vanish days later, for whatever reason, is disconcerting for anyone making long-term plans like this.  Can the offer be grabbed whilst there, albeit completed long afterwards?

Once you get a quote, there is a guarantee period to get the application in and a further guarantee period to get the funds across.

In very simple terms, the reason the providers move around in annuity pricing is often based on the levels of gilt purchases they want to build up on their books.   It can aid their financial solvency requirements.   If they need a bit more, they will improve their rate to attract the business.  If they have enough, they don't need to be as competitive in their pricing.      

At other times, they may have speculated on purchases and bought a specific amount of gilts at a better margin, which they can use to attract new business.  However, when that money has gone, they drop back again.   A bit similar to fixed rate mortgages or fixed term deposits that have £x of funding available and once its allocated, it is withdrawn.  

If a broker/IFA is probably the only access to the annuity providers, does the customer get anything like a web page/interface to play with variables?  Meaning she might like the idea of an annuity that paid a guaranteed time/amount beyond death, but not if it hit her lifetime payment too much, so might want to adjust in real-time to decide the best compromise.

If an IFA is used, they typically ascertain your needs and recommend the best annuity to match your objectives.  However, they would normally provide a sample of quotes so you can see the differences.

If you use an annuity broker, you can get variations on many shapes from them too. Except they dont recommend what they feel is best.  They just take instructions from you.

Accepting that the IFA fee/ broker commission might come from the pension pot, so be less visible, how much are we talking about?

Commission is usually percentage-based but is often in the 1% to 3% ballpark.  Fees would be similar.  Larger pots can often receive a discount on that.

And are the possible special guarantees you describe offers so that those pension companies who will also offer annuities, attempt to retain that customer?

No. Retention deals don't exist on annuities.     

Roy1234

No. Retention deals don't exist on annuities. 

So what are these Special Guarantees you say she should enquire about?

Once you get a quote, there is a guarantee period to get the application in and a further guarantee period to get the funds across.

If these guarantee periods are (correct me if wrong) maybe a month to get the application in or not much more, then more time to transfer the funds, what is the best timing to go via the IFA or the Broker route, if she'd like to be collecting her pension in June?  

The transfer time of getting the funds across would obviously not be in her hands once initiated, which is a slight worry.

dunstonh

So what are these Special Guarantees you say she should enquire about?

Which special guarantees? (I don't think I have used that phrase).  There are several potential places where the word guarantee comes into play:

Guarantees could be in the existing pension (safeguarded benefits) or on purchase of the annuity (such as guaranteed death benefits).    Or the guarantee periods on how long you have to lock in that annuity rate for application and funds arriving.

If these guarantee periods are (correct me if wrong) maybe a month to get the application in or not much more, then more time to transfer the funds, what is the best timing to go via the IFA or the Broker route, if she'd like to be collecting her pension in June?  

With mainstream pensions it can take 1-2 months to get the information from the providers (some are as quick as a few days but some take ages or need chasing to fill missing gaps).    For example,  I sent one to Aviva yesterday and they supplied the info today. Whereas I sent one to SW in early December, and it has yet to arrive.

The annuity rate guarantee for the application varies with providers but typically lasts around 2 weeks.  Fund transfer is about a month after that.  So, plenty of time in most cases.

DRS1

Roy1234 said:

No. Retention deals don't exist on annuities. 

So what are these Special Guarantees you say she should enquire about?

Once you get a quote, there is a guarantee period to get the application in and a further guarantee period to get the funds across.

If these guarantee periods are (correct me if wrong) maybe a month to get the application in or not much more, then more time to transfer the funds, what is the best timing to go via the IFA or the Broker route, if she'd like to be collecting her pension in June?  

The transfer time of getting the funds across would obviously not be in her hands once initiated, which is a slight worry.

On timing don't underestimate how long it might take you to find an IFA who will do this for you.  There have been threads on here about how tricky that is and how long it can take.  Finding a broker (like HL or RL) would be quicker but may not get you the best deal.  Although RL does have a we won't be beaten type page - I think it is a gift voucher if you find a better like for quote.  I never put that to the test.

One thing to do is to sort out what type of annuity she wants.  Obvious things are Joint lives or Single life?  Level annuity or increasing?  If increasing then by how much - eg RPI or a flat amount like 3% or 5%?  Should it have value protection? Value protection is a sort of life cover so if you die before the annuity has paid out the capital used to buy the annuity then the balance is paid out as a lump sum.  Or should it have a guarantee period?  That is where the annuity is guaranteed to be paid for a period of time such as 10 years.  I think the longest period anyone will quote for is 30 years.  I also think there may be some things to look out for with value protection and very long guarantee periods but I forget what they are.

It would help to sort out the basics of those options before asking for a quote otherwise you will drown in paper.  But you can always feed the alternatives into the Moneyhelper or HL calculators to see what impact there is on the annuity.

When she approaches the insurance companies for quotes she may get a quote over the phone but it will be followed up by a letter with the forms she would need to sign if she did take up their quote.  I don't know what your post is like but at least one such letter went astray for me and I had to get it resent.  The ones that arrived tended to take a couple of weeks to arrive.

A broker or IFA will probably be quicker than that but if you approach the insurers first before going to an IFA or broker then factor that into your timescale.

As I said in an earlier post if it was me aiming for a June start date I would start now.

You mention the uncertainty about timing the payment to the annuity provider.  There is nothing you can do about that.  As I may have said before I was checking on a very regular basis that the monies had moved and phoning up asking what the hold up was.  All that does is give you an ulcer.  It doesn't make things happen any quicker.  A reason why I was focussing on it was because the annuity paid depends on how much you spend on it and if your pension is invested in equities or bonds then the value moves every day..  One thing to consider is whether to change the investments in the pensions to something less volatile or to something which matches the annuity - eg index linked gilts if she goes for an index linked annuity.  It may not be a perfect match but it may mean you don't feel you need to check on price movements every 5 minutes. 

Roy1234

Guarantees could be in the existing pension (safeguarded benefits) or on purchase of the annuity (such as guaranteed death benefits).    Or the guarantee periods on how long you have to lock in that annuity rate for application and funds arriving.

But she has no choice but to transfer those pension funds (via IFA/broker) to an annuity provider, severing any link/benefits from the old pension company, doesn't she?

On timing don't underestimate how long it might take you to find an IFA who will do this for you.  There have been threads on here about how tricky that is and how long it can take.  Finding a broker (like HL or RL) would be quicker but may not get you the best deal.  Although RL does have a we won't be beaten type page - I think it is a gift voucher if you find a better like for quote.  I never put that to the test.

Well that is another surprise.  Is that a reflection of the growing regulation etc on IFA's shrinking the pool of those still practicing?

One thing to do is to sort out what type of annuity she wants.  Obvious things are Joint lives or Single life?  Level annuity or increasing?  If increasing then by how much - eg RPI or a flat amount like 3% or 5%?  Should it have value protection? Value protection is a sort of life cover so if you die before the annuity has paid out the capital used to buy the annuity then the balance is paid out as a lump sum.  Or should it have a guarantee period?  That is where the annuity is guaranteed to be paid for a period of time such as 10 years.  I think the longest period anyone will quote for is 30 years.  I also think there may be some things to look out for with value protection and very long guarantee periods but I forget what they are.

She's set on a Joint life annuity rising with inflation (my pensions will give her the same).  Whether by 3% or the RPI, and whether a guaranteed sum/period, are options I only recently discovered and so we haven't considered yet. No one likes the idea of croaking just a few years into their pension, leaving little chance of ever extracting what was saved, even with a widower's half pension.  But the question will be what period/sum, and with what impact on the annuity?  Would a 10 year guarantee have a big effect? An inheritance means she's not desperate to full forward earnings by way of a higher value but fixed annuity, or a tax free lump sum.  She want's a safe decent income that won't be eroded by inflation too much.  She's planning for the longer term in otherwords.

One thing to consider is whether to change the investments in the pensions to something less volatile or to something which matches the annuity - eg index linked gilts if she goes for an index linked annuity.  It may not be a perfect match but it may mean you don't feel you need to check on price movements every 5 minutes. 

As both pension companies have been given a retirement date of this June, isn't it normal/automatic for them to move investments into high security/lower return as that date approaches?  My work related pensions certainly do this.

MallyGirl

Roy1234 said:

As both pension companies have been given a retirement date of this June, isn't it normal/automatic for them to move investments into high security/lower return as that date approaches?  My work related pensions certainly do this.

that totally depends on what product she has with her providers. It is often referred to as lifestyling.

DRS1

Roy1234 said:

Guarantees could be in the existing pension (safeguarded benefits) or on purchase of the annuity (such as guaranteed death benefits).    Or the guarantee periods on how long you have to lock in that annuity rate for application and funds arriving.

But she has no choice but to transfer those pension funds (via IFA/broker) to an annuity provider, severing any link/benefits from the old pension company, doesn't she? I have mentioned that I had a pension with SW and bought the related annuity from SW.  So the link has remained for that one.  The reason I stuck with SW was that my pension had a GAR and I would lose that GAR if I transferred the pension elsewhere or bought an annuity from a third party.  That is why it is important to check if she has any such benefit in her existing pensions.

On timing don't underestimate how long it might take you to find an IFA who will do this for you.  There have been threads on here about how tricky that is and how long it can take.  Finding a broker (like HL or RL) would be quicker but may not get you the best deal.  Although RL does have a we won't be beaten type page - I think it is a gift voucher if you find a better like for quote.  I never put that to the test.

Well that is another surprise.  Is that a reflection of the growing regulation etc on IFA's shrinking the pool of those still practicing? I don't know about that.  The thread I was thinking of was from someone who could not find an IFA who would just deal with the buying of the annuity.  Many of them wanted to do a full financial survey and give ongoing advice on all things financial.  Others just have trouble finding an IFA at all.  The usual source (unbiased) seems to have become the home for big firms not the smaller independents that you might prefer.  I think there is a box you have to tick to find them.   

One thing to do is to sort out what type of annuity she wants.  Obvious things are Joint lives or Single life?  Level annuity or increasing?  If increasing then by how much - eg RPI or a flat amount like 3% or 5%?  Should it have value protection? Value protection is a sort of life cover so if you die before the annuity has paid out the capital used to buy the annuity then the balance is paid out as a lump sum.  Or should it have a guarantee period?  That is where the annuity is guaranteed to be paid for a period of time such as 10 years.  I think the longest period anyone will quote for is 30 years.  I also think there may be some things to look out for with value protection and very long guarantee periods but I forget what they are.

She's set on a Joint life annuity rising with inflation (my pensions will give her the same).  Whether by 3% or the RPI, and whether a guaranteed sum/period, are options I only recently discovered and so we haven't considered yet. No one likes the idea of croaking just a few years into their pension, leaving little chance of ever extracting what was saved, even with a widower's half pension.  But the question will be what period/sum, and with what impact on the annuity?  Would a 10 year guarantee have a big effect? An inheritance means she's not desperate to full forward earnings by way of a higher value but fixed annuity, or a tax free lump sum.  She want's a safe decent income that won't be eroded by inflation too much.  She's planning for the longer term in otherwords.  So she wants an RPI linked annuity - not 3%.  @dunstonh or others will have views on whether you need a guaranteed period if you go for joint lives.  If you have gone for 50% spouse annuity then it may make sense to have the 100% continue for x years if she dies early.  What I am not sure about is if the 100% would pay out at the same time as the 50% or if the 50% would only start at the end of the guarantee period.  Something an IFA or broker would know more about.  As to the effect it has on the annuity that is why you use the Moneyhelper or HL calculators.  They will give you a feel for the impact.

One thing to consider is whether to change the investments in the pensions to something less volatile or to something which matches the annuity - eg index linked gilts if she goes for an index linked annuity.  It may not be a perfect match but it may mean you don't feel you need to check on price movements every 5 minutes. 

As both pension companies have been given a retirement date of this June, isn't it normal/automatic for them to move investments into high security/lower return as that date approaches?  My work related pensions certainly do this.  As @MallyGirl says that depends on how her pensions are invested.  The older forms of lifestyling were based around buying an annuity at your selected retirement date but more modern ones can be geared towards drawdown and so glide into bonds/cash at a more gentle rate and leave a lot more in equities for longer.  And there was a time before anyone had heard of lifestyling.  Her annual statements should say what the pensions are invested in.

Comments in bold up above